Why Bitcoin fell below $82K: What bank earnings and CPI could do next

To start the week, Bitcoin (BTC) peaked at $84,254 on Monday before sliding about 2.2% to around $81,780. The fall triggered $488.6 million in crypto liquidations over 24 hours. Ether (ETH) led all assets with $115 million in liquidations, ahead of BTC at $107 million.

By late Tuesday, BTC made a mild recovery to above $83,000, ahead of the CPI release; the rebound held even as South Korea's KOSPI fell more than 6% in a chip-stock rout and Nasdaq futures slipped.

However, after the US inflation came in hotter than expected, BTC fell to about $81,500 on late Wednesday.

It was the second flush in a week. Last Thursday, BTC briefly dropped to around $80,400, its lowest point since the late-September rally stalled.

A hot core reading

Headline prices rose 0.6% in September, in line with forecasts, taking annual inflation to 3.7% from 3.4%. Economists had expected 3.6%. Gasoline jumped 9.1% and accounted for more than half of the monthly increase.

The bigger surprise was core inflation, which strips out food and energy. It rose 0.3% on the month against a 0.2% forecast, lifting the annual rate to 2.6% from 2.4%. The Fed can look past a spike in gasoline prices for a while. It's harder to ignore price pressure spreading into everything else.

Traders reacted quickly. CME FedWatch odds of a rate hike at the Fed's October 27 to 28 meeting jumped from about 22% before the report to above 49% shortly after. By late Wednesday, the odds had settled near 32%, while the chance of a hike by December climbed to about 90%.

The oil-rigins of the damage

Brent crude climbed to $107.25 a barrel on Monday, its highest level since September 16, while US crude topped $94. The Ukraine-Russia conflict escalated despite talk of an ‘energy ceasefire’ and a tanker fire was reported in the Strait of Hormuz.

Expensive oil feeds straight into inflation and inflation is what the Federal Reserve is fighting. BTC rallied to $87,000 in late September partly on hopes that the Fed was close to done raising rates. Each jump in energy prices chips away at that view.

A slow ETF return

The selling on Monday happened just when the market had already lost much of its institutional support the week before. US spot BTC ETFs saw $678.9 million in net outflows between October 5 and 9, reversing the $241 million they took in the week before. Spot ETH funds lost another $542.2 million, taking the combined total to $1.22 billion.

Tuesday brought the first sign of a turn. Spot BTC ETFs took in $175.6 million, led by Fidelity's FBTC and BlackRock's IBIT . It was the funds' second-biggest inflow day of the month, after October 2. ETH ETFs added $24.8 million.

What bank earnings told market watchers

The big banks' third-quarter results came in mixed. JPMorgan earned $5.57 a share, short of the $5.93 analysts expected and its first miss in nearly three years.

Goldman Sachs went the other way. It earned $17.01 a share on $18.68 billion in revenue, its second-highest quarterly total on record. Citigroup and Wells Fargo also beat forecasts.

JPMorgan CEO Jamie Dimon said business investment and consumer spending were still holding up the US economy, but listed "sticky inflation, elevated asset prices, rising interest rates and geopolitical conditions" among the risks.

Wall Street took the results in its stride. The S&P 500 closed flat and the Dow slipped 0.35%, with memory-chip stocks doing more damage than the banks. Busy trading desks and healthy consumers tend to be good news for the economy, but they give the Fed little reason to ease up on rate hikes. TheCPI report gave it one more reason to keep going.

What comes next

The producer price index, which tracks what businesses pay, is due Thursday, alongside retail sales and weekly jobless claims. Economists expect PPI to rise 0.5%.

A second hot reading may strengthen the case for an October hike and may push BTC back toward last week's lows. A cooler one could pull hike bets back toward December and give buyers room to retake $83,000.

After that, the focus moves to the Fed's October 27 to 28 meeting.

Bitcoin price: Levels to watch

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